GLOBAL investor service agency Moody’s has downgraded WA’s credit rating in yet another blow to the state’s Budget woes.

The decision was disappointing, but understandable and not a surprise, WA Treasurer Mike Nahan said today.

Mr Nahan said volatile iron ore revenues and WA’s small share of the GST are to blame for the rating drop.

In a statement, the agency said current debt levels, a slowdown in the mining investment sector and “challenges” in lowering the state’s Budget gap saw it drop the rating from AAA to AA1.

“The ratings downgrade reflects the state’s ongoing deficit position, the deterioration in its debt metrics, and a growing risk that this trend may not be reversed soon,” the statement said.

“The challenges related to narrowing the budget gaps include greater volatility in the state’s revenue base, reflecting its increasing reliance on royalty income, expenditure pressures related to the rapid expansion in the state’s economy and population, and a weak policy response to the deteriorating financial and debt position.”

These trends, the agency said, had led to “persistent” deficits on total government spending.

These averaged 5 per cent of revenues from the 2008-09 financial year through 2012-13.

The agency added that in 2013-14, the deficit is estimated to be equal to 6.2 per cent of revenues as current expenditures continue to outpace revenues.

But it also noted that while mining investment was down, WA’s economy was still expected to outpace other Australian states.

It also said the Barnett Government’s “fiscal action plan” to increase tax rates, and implement a new wage policy that would cap salary increases to inflation were “positive steps”, there needed to be more “resolve”.

“The lack of a strengthening in government resolve to slow the pace of expenditures without offsetting improved revenue trends — resulting in wider deficits and continued debt accumulation — could lead to downward pressure on the ratings. A more effective budgetary redress plan that allows the state to return to a surplus position and an associated easing in the debt burden could lead to a rating upgrade.”

The rating decision follows similar action by Standard and Poor’s, which cut WA’s credit rating from AAA+ in September last year to AA+.

Mr Nahan said the downgrading was disappointing but not a surprise, and Moody’s reasons were understandable.

But he said WA had to live within its means and the state’s GST distribution share remained a problem considering iron ore royalties had gone down so sharply and unexpectedly.

He said it was no longer sustainable for WA to pour money into other states.

“It’s simply no longer sustainable that Western Australia can continue to pour money into Canberra and other states given these lower iron ore prices,” Mr Nahan told reporters on Monday.

The distribution of GST for WA has fallen from a return of 93 cents per $1 in 2007-08 to 37 cents in 2014-15.

The treasurer said there was nothing the government could do about iron ore prices dropping sharply. He said WA was highly dependent on iron ore royalties, which provided 20 per cent of the state’s income, but the price had fallen more than 30 per cent since the budget was handed down earlier this year.

“(But) we’re committed to balancing the books,” Mr Nahan said.

He admitted it would be difficult to get the AAA credit rating back while the state was so reliant on volatile mining royalties and not getting a greater share of the GST.

Mr Nahan added that the premier would announce an asset sale program later this week and further measures would be considered in the mid-year review and in developing the 2015-16 budget.

Opposition spokesman Ben Wyatt said under Colin Barnett’s government, the state debt had gone from $3.6 billion in 2008 to an expected $29 billion in 2017-18.

Mr Wyatt said the premier should step down because he was more focused on his infrastructure legacy than handing over a good set of books.

He said Moody’s had used the most brutal rhetoric to show it had no faith in the Barnett government’s budget strategy and debt management.

“There is a reality for Mr Barnett’s financial negligence and that is the next generations of West Australians are going to have to make do with either high taxes or fewer services,” Mr Wyatt said.

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